It seems so simple. Buy a $100 Web-authoring program, pay a few
more bucks for a domain name and space to put up your site, then
watch out--you are on the fast track to a cool billion dollars . .
. or at least a couple million. It happened at Amazon.com, eToys,
Autobytel, and more e-businesses than you could click a mouse at.
Except it's not that easy. "I'd say 75 percent of Web
sites are inadequate; they won't succeed," says Janet
Asteroff, director of e-business services with The Concours Group,
a Kingwood, Texas-based e-business consulting company.

Too pessimistic? Not according to some experts. "At least
70 percent of Web sites are just up there and don't do much at
all," says Wally Bock, a Wilmington, North Carolina,
e-commerce consultant.

Keep talking to experts, and the general guesstimate is that at
minimum, two in three e-businesses are doomed. And
that's because it's just not as simple as it seems to erect
a smoothly functioning Web site that makes money, too.

Robert McGarvey is Entrepreneur magazine's monthly
"Web" columnist

The Hard Truth

Chew on this: Beyond.com, one of the real superstars of
cyberspace, logged sales of $36.6 million for the fiscal quarter
ending September 30, 1999--and $25.9 million in net losses. For the
six months ending September 30, 1999, eToys notched sales of $23.3
million and a net loss of $82.3 million.

Swallow those losses, then inhale this sobering reality:
"It's easier to lose $1 million overnight with a Web site
than to make it," says Stephan Moen, a vice president at Aspen
Consulting, a Rolling Meadows, Illinois, e-business consulting and
research firm.

"It is hard to do a Web site right," adds Phil Terry,
CEO of New York City-based Creative Good, a Web strategy consulting
and research firm. "And there are so many ways to do one
wrong."

For instance?

Undercapitalization. "This is a chief reason why
e-businesses fail," says Moen. "They don't budget
enough money to build a site that can succeed."

The days are long gone when a few kids in a dorm room could put
up a Web site and have it become an instant hit. Big money is
needed to get a site off the ground today because the technology
bar has been raised dramatically higher. That's upped the ante
in site design and hardware necessary to operate the site. How
much? "Anywhere from $300,000 up to $1 million," Moen
estimates. That amount would cover hardware, software and initial
site design.

Some sites targeting well-defined niches can get by on less. But
just as often, much more cash will be required, particularly when
the goal is creating a national brand. "We're budgeting
$20 million to build our brand," says Andrew Brooks,
37-year-old CEO of Furniture.com, a Framingham, Massachusetts-based
online furniture start-up. "Building a national brand is
essential."

And getting ahold of the money needed to create national brand
recognition--despite what you read about venture
capitalists--isn't easy. "Raising the first money is
tough," says Kathy Morell, 26, co-owner
of MakeUsAnOffer.com, an online haggling site based in
Lawrenceville, New Jersey. So many tech start-ups are now seeking
investors' cash, says Morell, it's difficult to rise above
the noise level. While she managed to raise about $1 million in
first-round angel funding and currently is closing a larger venture
funding round, she reports, "this takes a lot of hard
work."

And don't count the money until it's in your pocket,
says Andy Oldham, 36, co-founder and CEO of eHome, a Web site where
real estate sellers pay lower fees than are charged by conventional
Realtors. Once he'd put together a business plan, Oldham
shopped it around and quickly found a large escrow company that
wanted to be the sole investor for eHome: "They agreed to put
up $4 million," he says.

Oldham thought he was home free
until . . . "At the 11th hour, they pulled
the plug," says Oldham. "Right there, we lost three
months--that's how much time and energy we had put into that
deal." Oldham eventually bounced back and got start-up funding
from Garage.com (http://www.garage.com), which matches
good ideas with money sources, but the sobering moral is: Internet
funding can vanish, and until a deal is signed, never start
spending any investor's money.

How can that be when most Web browsers and e-business server
computers use encryption technology that scrambles a customer's
credit-card information? Johnson laughs: "That's not the
problem. The problem is that hackers break into the Web site's
computers and steal the whole credit-card database. It happens more
often than you'll ever read about."

When he tells that to clients, many scoff. "[But then] we
look through their access records and show them when and how
hackers already have broken into their system," says Johnson.
"Maybe they haven't accessed the credit-card database, but
they've been inside and looked around. Probably, they'll be
back, too."

The cure: "Work with security experts," says Johnson.
"Usually inexpensive solutions can be implemented that will
safeguard your data."

Help wanted. Putting up a professional-quality e-commerce
site is rarely a do-it-yourself project. Few entrepreneurs have the
knowledge and time it requires. But "hiring talented techies
is difficult," says Morell. "They are in such great
demand."

They're also expensive: Morell says a $70,000 to $150,000
salary is standard in her central New Jersey location, and higher
salaries are common in hotspots like Silicon Valley and Seattle.
And as the demand rises for qualified help, you can expect salaries
to do the same.

No traffic. Put up a site, and the next step is getting
the money bags ready, right? Not hardly. "Nobody will come to
it," says Jason Foodman, the 32-year-old CEO of Atlanta-based
Trexar Technologies, a software developer that e-tails through its
MacAlive Web site (http://www.macalive.com).
"Putting it up is only the beginning."

Worse, Foodman debunks the notion that once you get your site
listed by the main search engines, the work is behind you.
"Search engines won't bring you much traffic," he
says. And while he's made certain his site is listed in the
various engines, "out of 5,000 visitors on an average day,
maybe 30 come from the search engines," he says.
"That's no way to build a business."

How to lure eyeballs? "You have to promote your site,"
says Foodman, who buys advertising exposure online and in print
magazines. "That's the only way to win on the
Web."

They don't buy. But once you've got traffic,
profits are within reach, right? You know what's coming. The
startling news is 75 percent of online customers who fill shopping
carts bail out before clicking the "buy" button,
according to research from BizRate (http://www.bizrate.com) and NPD Group
(http://www.npd.com).

"For most sites [the conversion rate] is under 2
percent," says Phil Terry, referring to the percentage of
visitors who actually buy something.

In other words, a site can be jammed, but the cash register may
never ring. "Most sites focus on the wrong thing--they seek
traffic, not customer experience," says Terry, who adds that
the remedy is to build an e-tailing site, from the ground up, with
the goal of enhancing and simplifying the shopping experience.

Outages. Many major Web sites have had them, and the
inevitable result is a flood of bad publicity. Sometimes outages
are flukes--bugs that surface in software or that occur during a
site upgrade. But often, "the problem is implementation of a
poor plan at the beginning," says Moen.

Even worse, outages often happen exactly when a Web site begins
to catch on. "Many sites simply don't scale," says
Moen, meaning a site that works fine when there are 100 visitors a
day may show strains at 1,000. "You need to build a site that
readily scales as traffic increases," he adds.

Doing so requires nothing more than planning. Always ask your
technical consultants, if traffic goes up tenfold, how will we
handle it? Make sure you know the answer before putting up your Web
site, because once a Web site catches on, it's like
wildfire.

Fraud. A dirty secret about the Web is that crooks love
it due to the comparitive anonymity afforded by the Internet. Just
listen to Jonas Lee, the 33-year-old founder and CEO of
GiftCertificates.com (http://www.giftcertificates.com):
"From Day One, we've had problems with fraud, but every
e-tailer does. Fraud is part of selling on the Internet.

"We're lucky we started slow. As we grew--as public
awareness of us grew--we also grew more expert at detecting fraud.
Every e-tailer has to do the same."

Fighting off the big dogs. Larry Cuneo, the 48-year-old
CEO of Minneapolis-based CarSoup, knew he had big problems from the
day he launched his site in 1998. The space he coveted--selling
cars on the Net--had already been staked out by big players,
including Microsoft (with CarPoint) and Autobytel.com. But Cuneo
thought he had a unique twist: His site would be local, targeted
strictly at nearby dealers and car buyers. But it was rough going.
"We had considerable difficulty gaining credibility,"
says Cuneo. "That's lowered our recognition and our
revenues--from advertisers and e-commerce partners."

Cuneo didn't quit, though. For one thing, he budgeted 50
percent of his gross revenues for marketing and promotion. He also
invested substantial time in coming up with local promotions the
big boys couldn't
rival. "We'll sponsor cars in parades and little local
events," says Cuneo. The upshot: Today his site, http://www.carsoup.com, holds a
genuine lead in its market over the national rivals. "But
we've had to work hard to get here, and we'll have to work
to hold this spot," says Cuneo.

Making partners. For many start-up e-businesses, the
surest path to prosperity is to hook up with established businesses
and hope their reputations will help. (See http://www.entrepreneur.com,
"Find Your Partner," February.)

The biggest problem Jonas Lee at GiftCertificates.com struggled
with was finding companies willing to do business with him. His
idea to sell gift certificates redeemable at major retailers
sounded terrific, but he had problems persuading retailers to do
business with him. He now has deals with over 350 major retailers,
but "we knocked on many doors before we signed the first
deals," he says.

Why? Start-ups are potential pathways to wealth, but they are
also fly-by-night, and major, established businesses don't want
to risk tarnishing their brands by partnering with start-ups that
go bust. "It took me two or three months of persistent calling
and explaining," Lee recalls. "You may have a good idea,
but you have to also convince people you're a good business
person, and that takes time." The broader point: Partnerships
are wonderful, but convincing partners to ally with you is nothing
short of hard work.

Worth The Effort?

Are all these tribulations too much to suffer? Of course, the
upside is the potential for fantastic wealth. But another take is
offered by Oldham. "Although I never would have imagined how
much energy and anxiety go into building a dot.com business, this
is a great way to pursue business success," he says.
"There's a lot of tension--but it also is a lot of
fun."